ECB’s de Cos: Too Soon to Talk About Rate Cuts

21 November 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pablo Hernández de Cos on Tuesday reiterated that any discussion of looser ECB monetary policy was premature.

In remarks at a conference in Rome, de Cos, who heads the Banco de España, said according to slides provided by his institution that ‘key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to ensure that inflation returns to its 2% medium-term target in a timely manner.’

‘For the moment, it is too early to talk about interest rates decreases’, he said.

In the face of elevated uncertainty, the ECB had to be data-driven, he said.

Growth in the second half of 2023 would be ‘very weak’ and was subject primarily to downside risks, he said. Inflation, including underlying, was consistent with projections, with risks balanced, he said.

Since the September Governing Council meeting, financial conditions had tightened beyond expectations, ‘confirming a very strong pass-through of our monetary policy’, he said. ‘Moreover, a significant part of the pass-through of monetary policy tightening is still pending.’

A worsening of the conflict in the Middle East could impact very negatively confidence and financial markets in addition to raising energy prices, but monetary policy might not react as it did in the wake of Russia’s war against Ukraine, he said, since key interest rates were now much higher and growth much weaker.

‘In order for monetary policy to have such a different reaction to the eventual materialization of this new negative supply shock, it would be crucial: (i) inflation expectations in the medium term to remain anchored at 2%; and (ii) second-round effects on wages and inflation to be limited’, he said.